Amos v Bank of Queensland Limited - [2010] FMCA 928

FEDERAL MAGISTRATES COURT OF AUSTRALIA

AMOS v BANK OF QUEENSLAND LIMITED

[2010] FMCA 928

BANKRUPTCY – Bankruptcy notice – application to set aside – prescribed form of bankruptcy notice substituted after notice issued but before service – notice issued against two debtors – alleged set-off, counterclaim or cross demand – notice valid – application dismissed.

Bankruptcy Act 1966, s.41(2)
Legislative Instruments Act 2003, s.15
Bankruptcy Regulations 1996, regs 4.02, 4.02A(a)
Bankruptcy Amendment Regulations 2010 (No.1)
Federal Magistrates Court (Bankruptcy) Rules 2006, rr.3.02 (2), 13.01
Evidence Act 1995, s.131
Property Law Act 1974 (Qld), s.85

Walsh v Deputy Commissioner for Taxation (1984) 156 CLR 337
Hubner v Australia & New Zealand Banking Group (1999) 88 FCR 445
Biggs v CNH Capital Australia Pty Ltd [2006] FMCA 147
Dimasi and Another v Nangiloc Colignan Farms Pty Ltd (2007) 157 FCR 387
Bank of Queensland Limited v Amos & Ors [2010] QSC 237

Applicant:

DONALD GREGORY AMOS

Respondent:

BANK OF QUEENSLAND LIMITED

File Number:

BRG 1160 of 2010

Judgment of:

Jarrett FM

Hearing date:

25 November 2010

Date of Last Submission:

25 November 2010

Delivered at:

Brisbane

Delivered on:

29 November 2010

REPRESENTATION

Solicitor for the Applicant:

Mr McCartney

Solicitors for the Applicant:

Simmons & McCartney

Solicitor for the Respondent:

Ms Kee

Solicitors for the Respondent:

HWL Ebsworth Lawyers

ORDERS

The application filed on 17 November, 2010 is dismissed.
The applicant pay the respondent’s costs of and incidental to the application fixed in the sum of $1,883.00.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT BRISBANE

BRG 1160 of 2010

DONALD GREGORY AMOS

Applicant

And

BANK OF QUEENSLAND LIMITED

Respondent

REASONS FOR JUDGMENT

By his application filed on 17 November, 2010, Donald Amos seeks that Bankruptcy Notice QN1052 of 2010 served on him on 17 October, 2010 be set aside. He also seeks his costs of the application.
The respondent opposes the setting aside of the notice. It seeks its costs of the application.
The Bankruptcy Notice seeks payment of the sum of $1,279,409.20. That amount is owing pursuant to a judgment of the Supreme Court of Queensland given on 6 July, 2010. A copy of the order of the de Jersey CJ is attached to the Bankruptcy Notice.
Mr Amos argues that the Bankruptcy Notice should be set aside because:
a)he has a counterclaim, set-off, or cross demand that could not have been set up in the proceedings in which the judgment upon which the Bankruptcy Notice is based was given.
b)The Bankruptcy Notice is in the wrong form; and
c)The Bankruptcy Notice is issued against two debtors and for that reason it is misleading.

Counter-claim, set-off or cross demand

Rule 3.02 (2) of the Federal Magistrates Court (Bankruptcy) Rules 2006 provides:
3.02 Setting aside bankruptcy notice (Bankruptcy Acts 41 (6A), (6C) and (7))
…
(2) If the application is based on the ground that the debtor has a counter-claim, set-off or cross demand mentioned in paragraph 40 (1) (g) of the Bankruptcy Act, the affidavit must also state:
(a) the full details of the counter-claim, set-off or cross demand; and
(b) the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
(c) why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
In support of his application, Mr Amos relies upon two affidavits, both sworn by his solicitor. In the first (filed on 17 November, 2010), the closest that any of the evidence therein comes to dealing with a counter-claim, set-off or cross demand is the following passage:
Based upon the assumption of an equal split of the judgement debt and on the creditor’s admission that $960,000 in security properties is held as an offset of the judgment debt, my client offered 50% of what he calculated to be the outstanding amount of the judgment debt after realisation of the security properties….
Copies of correspondence between the parties were exhibited to the affidavit, but I struck out the exhibits on the basis that their inclusion offended s.131 of the Evidence Act 1995 (Cth). There was no objection to the “evidence” in the balance of the paragraph.
The second affidavit relied upon by Mr Amos was filed by leave on the morning of the hearing. It too, was sworn by his solicitor. Seemingly its only purpose was to place before me the Further Amended Defence and Counterclaim of the applicant in the Supreme Court proceedings in which the relevant judgment was given, and a copy of the reasons for judgment in those proceedings.
The Further Amended Defence and Counterclaim in the Supreme Court proceedings was a single document filed for the four defendants to that proceeding: Donald Gregory Amos, Peter Donald Smith, Smith Allure Pty Ltd and Pearlrange Pty Ltd. The plaintiff in the counterclaim was Magnetic Allure Pty Ltd.
The reasons of the Chief Justice (see Bank of Queensland Limited v Amos & Ors [2010] QSC 237) summarise the proceedings before him:
[1] The plaintiff sues for amounts owing under guarantees. The defendants guaranteed the indebtedness of Magnetic Allure Pty Ltd to the plaintiff under a “facility agreement” dated 14 September 2007. Each of the first and second defendants gave a separate guarantee, and the third and fourth defendants gave a joint guarantee. The guarantees also are dated 14 September 2007. The plaintiff advanced approximately $1.7 million to Magnetic Allure, which made no repayment. The plaintiff made demand on the defendants as guarantors and they made no payment in response.
In the proceedings, the defendants sought to set up a set-off against the plaintiff arising out of the plaintiff’s dealings with property owned by Magnetic Allure Pty Ltd over which security was taken for the “facility agreement”. The Chief Justice’s reasons explain the nature of the set-off:
[3] In addition to the guarantees, the plaintiff had the benefit of several mortgages over five properties. The defendants contend that the plaintiff was obliged to realize those securities by selling the properties “as one amalgamated site”, to preserve the value of a development approval. It in fact sold two of the properties separately. The contention is that optimal value was therefore not obtained. Otherwise, the principal debt would have been discharged without the need for recourse against the defendants, or the amount payable by them substantially reduced.
...
After deciding that there was no implied term in the guarantees that the plaintiff would realise its security by selling the properties as one amalgamated site and rejecting an argument that the relevant guarantees were subject to a condition that the secured properties would be realised in a particular way, the chief Justice continued:
[13] The defendants allege that the plaintiff breached its “equitable duty” (para 31 amended defence) by not selling the secured lots as an aggregation. The defendants refer in the amended defence to s 85 of the Property Law Act 1974, but the duty under that section was of course owed to Magnetic Allure. The delineation of any “equitable duty” owed to the guarantors is affected by the terms of the guarantees, and especially for present purposes, in addressing the issue whether there is any “real prospect” of success for the defence, the effect of cl 26.3.
[14] On this basis, the plaintiff must succeed in its claim against the defendant guarantors, and the proposed counterclaim against the plaintiff brought by Magnetic Allure (whose joinder was sought) would be unfounded insofar as it depended on the proposed implied term. Insofar as such a claim would depend more generally on alleged breach of duty under s 85, Magnetic Allure would be free to commence a separate proceeding were it so advised.
Mr Amos submits that “the effect of His Honour’s judgment does not extinguish his right to bring an action for the amount of the Counterclaim”: paragraph 6 of Mr McCartney’s affidavit filed by leave on 25 November, 2010.
But in my view it does.
As the Chief Justice explained, the duty owed by the respondent before me pursuant to s.85 of the Property Law Act 1974 (Qld) was owed to Magnetic Allure. The set-off claimed by Mr Amos, and the bases for it, were specifically adjudicated upon and rejected by the Chief Justice. Far from being a set-off, counterclaim or cross demand that could not be set up in the proceedings in which the relevant judgment was obtained, Mr Amos attempted to set it up, but it failed on the facts and the law.
Moreover, even if the above analysis is wrong, rule 3.02(2) has not been complied with. There is no affidavit that states:
a)the full details of the counter-claim, set-off or cross demand;
b)the amount of the counter-claim, set-off or cross demand and the amount by which it exceeds the amount claimed in the bankruptcy notice; and
c)why the counter-claim, set-off or cross demand was not raised in the proceeding that resulted in the judgment or order in relation to which the bankruptcy notice was issued.
The first ground relied upon to set aside the bankruptcy notice must be rejected.

The wrong form

Section 41(2) of the Bankruptcy Act 1966 requires that the bankruptcy notice must be in the form prescribed by the Bankruptcy Regulations 1996. Regulation 4.02 provides that the form of bankruptcy notice set out in Form 1 contained in Schedule 1 of the Regulations is prescribed for use.
The bankruptcy notice in this case was issued on 27 July, 2010. The form used for it complied with Form 1 as set out in Schedule 1 of the Regulations. Subject to what is said below about there being two debtors named in the notice, it was not suggested by Mr Amos that the notice was otherwise defective.
On 1 August 2010, however, Form 1 was substituted by a new form of notice pursuant to the Bankruptcy Amendment Regulations 2010 (No.1).
The Bankruptcy Notice was served upon Mr Amos on 17 October, 2010. Mr Amos argues that the notice must be defective because it was not in the prescribed form when it was served upon him – rather, it was in an obsolete form.
Generally speaking, the time at which validity of a bankruptcy notice is to be determined is the date of issue. In Walsh v Deputy Commissioner for Taxation (1984) 156 CLR 337, the following was held at page 340:
A bankruptcy notice is a document issued by the registrar, under statutory authority: see s.41(1) of the Bankruptcy Act. Normally, therefore, it would be expected that the validity of the notice should be tested as at the date of its issue. The prescribed form of notice bears a date and the notice itself states that the judgment creditor “has claimed that (the specified sum) is due by you to him”. In form the notice speaks as at the date which it bears, that is the date of its issue, and although service is essential to make non-compliance an act of bankruptcy, and although the time fixed for compliance runs from the date of service, the notice must be understood as speaking as at the date of its issue and the requirements of the notice, for the purposes of s.40(1)(g) of the Bankruptcy Act, must be ascertained in that context. This reinforces the view that the amount which must be correctly stated is the amount of the judgment debt owing at the date of issue.
Again, subject to Mr Amos’ argument about the inclusion of another debtor to the Bankruptcy Notice in this case, the Bankruptcy Notice was valid when it was issued.
Having secured the issue of the Bankruptcy Notice, the respondent was entitled to serve it at any time within 6 months of the date of its issue: reg 4.02A(a). The substitution of form 1 did not, in my view, affect that position. There is nothing in the Bankruptcy Amendment Regulations 2010 (No.1) to suggest that bankruptcy notices issued on 31 July, 2010 and not served on that day, are invalid. Having acquired the right, or privilege to serve the bankruptcy notice issued on 27 July, 2010, that right or privilege was not lost by substitution of a new Form 1: s.15 Legislative Instruments Act 2003.

Two debtors

A bankruptcy notice may be addressed to joint debtors who are each obliged to pay the full debt and are therefore able to comply with the notice: Hubner v Australia & New Zealand Banking Group (1999) 88 FCR 445 at [19] to [22]; Biggs v CNH Capital Australia Pty Ltd [2006] FMCA 147 at [15] to [19]; Dimasi and Another v Nangiloc Colignan Farms Pty Ltd (2007) 157 FCR 387 at [38] to [42].
Although it was argued that the Bankruptcy Notice was misleading because it was issued against two debtors, the way in which it might be said to mislead was not specified. It was suggested that if the notice was served on each debtor at different times, and one made a payment for example, the other would not know what was needed to comply with the notice.
It was not suggested however, that the persons named in the Bankruptcy Notice were not jointly liable for the whole of the debt. Indeed, the terms of the judgment would suggest joint liability, so that each would be liable for the whole debt. In those circumstances the issue of one Bankruptcy notice addressed to the two debtors is not, in my view, misleading.

Conclusion

No basis has been demonstrated upon which I am prepared to conclude that the Bankruptcy Notice is invalid. The application must be dismissed with costs.
As to costs, the respondent relies upon an affidavit of Germaine Kee filed by leave at the hearing which sets out the costs claimed in accordance with rule 13.01 of the Federal Magistrates Court (Bankruptcy) Rules 2006. No issue was taken with the amounts claimed in the schedule of costs annexed to the affidavit. The costs appear reasonable. In addition, there should be an allowance for the costs of the hearing. I accept that should be assessed at 2 hours at $330 per hour. The costs total $1,833.00.

I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Jarrett FM

Date: 29 November 2010